1. Territorial Adjustments in Government Transactions BEA Government Statistics Users Conference, Sep. 14, 2006 Benyam Tsehaye Economist, Federal Branch

2. www.bea.gov 2 Topics To Be Covered  Territorial adjustments  Aggregate economic measures  Definition of the United States  The conceptual problem  Proposed treatment  Project status and implementation

3. www.bea.gov 3 Territorial Adjustments  One type of adjustment made to source data in preparing NIPA measures is known as the “territorial or geographic adjustment”  Transactions between the economic agents in the U.S and the “territories”

4. www.bea.gov 4 Territorial Adjustments  “Territories” refer to -The U.S. Territories ∙U. S. Virgin Islands ∙Guam ∙American Samoa -The Commonwealth of Puerto Rico -The Commonwealth of Northern Mariana Islands

5. www.bea.gov 5 Territorial Adjustments This presentation is primarily about transactions between the U.S. Government and the territories.  Social insurance programs  Federal grant programs

6. www.bea.gov 6 Aggregate Economic Measures  National Income Product Accounts (NIPAs) -integrated set of economic accounts -show the composition of production and distribution of income earned in production - Examples: Gross Domestic Product (GDP), Gross Domestic Income (GDI), Personal Income and Personal Saving

7. www.bea.gov 7 Aggregate Economic Measures  GDP vs. GNP GDP is the featured measure of production in the U.S. -production by labor and property located in the U.S. -consistency with other key economic indicators -international comparability GNP measures production by labor and property supplied by U.S. residents in or outside the U.S.  Definition of the United States is needed

8. www.bea.gov 8 Definition of the United States  Source data used may employ different definitions  International Transaction Accounts (ITAs) and NIPAs.

9. www.bea.gov 9 Definition of the United States  International Transaction Accounts (ITAs) vs. NIPAs -ITAs emphasize customs and therefore view the U.S. territories as part of the U.S. -NIPAs, most source data traditionally cover the 50 States and the District, and view the U.S. territories as part of the rest of world  Coverage of the U.S. territories is not consistent

10. www.bea.gov 10 Conceptual Problem  In a system of integrated accounts, -sectors -double-entry accounting  It is imperative that boundaries, flows and their measurement be defined consistently in order to make the measures that are generated meaningful.  Hence a single definition of the economic boundary of the United States ought to be used.

11. www.bea.gov 11 Conceptual Problem  There are pros and cons to either definitions (ITA vs. NIPA)  However adjusting either definition would be a major project  Instead, this presentation deals with a narrower issue of consistently estimating NIPAs within current geographical scope

12. www.bea.gov 12 Conceptual problem  Social benefits received by residents of the territories ought to be excluded from NIPA personal income  One of the coverage adjustments used to achieve that is to exclude transactions with the territories from Federal source data  This leads to a slightly misleading picture of Federal government transactions and fiscal balances

13. www.bea.gov 13 Conceptual Problem  Social Security paid $493.1 billion to beneficiaries in 2004 (source: Social Security Administration): U.S. territories, $5.2 billion Foreign, $2.7 billion Domestic, $485.2 billion  In the NIPAs, -Gov. social benefits to persons ($485.2) -Government social benefits to the rest of the world ($2.7)  Payments to the territories ($5.2) are not counted

14. www.bea.gov 14 Proposed Treatment Recognize these transactions as flows between the U.S. Government and rest-of-the-world in the 2008 Comprehensive Revision of the NIPAs.  The “territories” will continue to be part of the “Rest-of- the-World” sector from the NIPA point of view.  The transactions between residents of the “territories” and the Federal Government will be recognized as Federal receipts and expenditures.

15. www.bea.gov 15 Proposed Treatment  Treatment will be in line with the current treatment of transactions between the private sector of the U.S. economy and the “territories.”

16. www.bea.gov 16 Progress Report  The research team: - Identified the main NIPA series and tables affected by implementation of the proposal -Identified sources to allocate territorial adjustments to transaction types—grants, social benefits, etc. -Will concentrate on refining historical data and examining implications to NIPA tables and series

17. www.bea.gov 17 Effect of Proposal If the proposal is implemented as presented today: NIPA table 3.2 (Federal Receipts and Expenditures) would be affected, mainly those series related to Social Insurance Programs

18. www.bea.gov 18 Effect of Proposal

19. www.bea.gov 19 Plan and Contact Information  The research team plans to incorporate the change in the upcoming comprehensive revision(2008) of the NIPAs.  Please forward comments and questions to Benyam Tsehaye Tel. 202-606-9791 e-mail benyam.tsehaye@bea.gov